By Asa Fitch

Nvidia turned in expectation-beating quarterly sales and profits Wednesday. The company's stock still fell in the aftermath.

Analysts pointed to narrower profit margins and worry about Nvidia's sales in China among the concerns weighing down the artificial-intelligence chip giant. After initially trading higher, shares fell 4% in midday trading Thursday.

Nvidia reported a 78% rise in sales for its last quarter to $39.3 billion and forecast about $43 billion for its current quarter-both ahead of analyst forecasts in a FactSet survey.

But Nvidia said margins were being squeezed by the cost of rolling out its latest generation of Blackwell chips, and would remain lower for a while. Chief Financial Officer Colette Kress said in a call with analysts that gross margins would be about 70.6% in Nvidia's current quarter, but could improve to roughly 75% late in the company's fiscal year, which ends next January.

"It wasn't perfect, mostly due to continued gross margin pressures," Morgan Stanley analysts said of the quarterly results. But "transitional issues" with the Blackwell chips were being resolved and margins were poised for an upward turn later this year, they said.

The Chinese market is another wildcard for the company. Kress said Nvidia would continue to sell chips in China while abiding by U.S. export controls that have tightened in recent years. China's share of Nvidia's data-center revenue remained below its level prior to the imposition of export controls and would remain at the current percentage, she said.

Longer-term, analysts at D.A. Davidson also raised doubt about Nvidia's fate if huge investments in AI don't deliver adequate returns-a long-unanswered riddle for the booming industry. "Despite demand in the near-term continuing to be strong, we still believe a decline in demand for Nvidia compute is inevitable as customers begin to scrutinize their ROI on AI compute," they said in a note maintaining a "neutral" rating on the stock.

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February 27, 2025 12:01 ET (17:01 GMT)

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